Fitch Official Doesn’t See Euro-Area Fiscal Union or Breakup Yet

Nov. 30 (Bloomberg) -- The European Union will probably
stick to a policy of seeking temporary solutions to its debt
crisis in the coming weeks rather than move toward a fiscal
union or breakup of the euro, a top Fitch Ratings official said.

The crisis in the bloc is one of management rather than the
result of Europe’s bad fundamentals, said Richard Hunter,
Fitch’s Group Managing Director for Corporate Ratings for
Europe, Middle East, Africa and Asia Pacific.

Euro-area finance ministers agreed at a meeting in Brussels
yesterday to work on boosting the resources of the International
Monetary Fund so it can “cooperate more closely” with the
European Financial Stability Facility in fighting the crisis,
which has threatened countries such as Italy and Greece with
debt default.

“We have three options and only a few weeks by the end of
the year,” Hunter told a Credit Risk Management conference in
Belgrade, Serbia, today. The three anticipated scenarios include
a fiscal union, a “muddle-through” approach of temporary
solutions, and a euro breakup.

‘Muddle-Through’

Fitch considers the “muddle-through” as the most likely
scenario “so different band-aids keep things going forward”
and “the more you move along with the sticking bands or
plasters, the more chance there is of a failure,” he said.

Talk of the euro area “becoming un-investable is kind of
stupid” because of 330 million people who have to buy something
with their own currency, Hunter said.

The EU resembles a company in its efforts to save the euro,
he said.

“If a company is generally performing well but bits
aren’t, that’s a management issue,” he said. “That gives you a
picture of 17 people sitting in a room pointing fingers at each
other and not 17 people sitting in a room and creating
solutions. So the crisis of the euro zone is very much one of
management, of policy making, rather than the one of fundamental
economic crisis.”

Even if a solution is found soon, it won’t remove the
issues as long as the sovereigns don’t agree to give investors
an incentive to come back to the market, he said.

“Italy, for example, is not insolvent, it’s nowhere near
insolvency, it’s fine, but the issue is whether the market has
an appetite for its debt,” he said.

The Fitch ratings of sovereigns and companies are higher
than current market pricings because the agency looks at
fundamentals, the official said.

With a prospect of hardly any growth in the euro zone in
2012 and a chance of a global double-dip recession, as even
countries like China experience soft-landing, the post-crisis
recovery is going to be “a long, slow, frightening and painful
process” that will take years, with more bad news to come for
stock markets, credit becoming even more expensive, and some
currency volatility “outside major currency blocs,” Hunter said.